It works best over WiFi, but also supports mobile 3G, and allows BT customers to make calls in the UK or abroad on their mobile device and have them billed as though they were from their BT home phone.

Users of the app can make cheaper calls to UK landlines, 0800, 0845 and 0870 numbers. Pay-as-you-go (PAYG) customers can also use the app to continue making calls even when they have run out of credit.

Call rates are claimed to be cheaper than most PAYG tariffs, and customers on BT's calling plans may get certain calls for free or even lower cost under their landline tariff.

For example, BT says that a 60-minute long call in the evening to a mobile phone on Orange PAYG would cost the user £15, but using BT SmartTalk over WiFi on an Unlimited Anytime Plan Plus, the same call would cost £1.72.

BT customers traveling abroad can also use SmartTalk over an internet connection to call home while abroad, but for the price of a UK landline call.

However, as the service relies on an internet connection to deliver the call, BT said that "call quality is dependent on the quality of your WiFi or mobile data connection". SmartTalk will warn the user when their web signal strength is poor.

John Petter, the managing director of consumer at BT, said that SmartTalk is a "really exciting breakthrough" that allows BT customers to save money by using their BT calling plan while on the go.

"BT SmartTalk helps you get even more value from your BT package and much more from your smartphone," he said.

"At last you can actually call freephone 0800 numbers for free from mobiles and get inclusive 0845 and 0870 calls too.

"And of course, you can take advantage of BT WiFi which gives you access to a massive network of 7.5 million hotspots around the world."

BT SmartTalk calls can be made to anyone, anywhere and at any time on an iPhone or Android handset. The app supports up to five users on one calling plan, making it useful for students in a shared house looking to save on calls.

The app will look to compete with Microsoft's hugely popular Skype and Virgin Media's SmartCall app, which was announced last November and will offer a similar service to SmartTalk but for Virgin customers.

Ernest Doku, telecoms expert at uSwitch.com, said that SmartTalk is potentially a "great tool for savvy consumers who want to get the most for their money".

He feels that the app could help end "bill shock" of people using their phone while abroad and being hit with a huge bill when they return home due to "horrendous roaming charges".

However, Doku added that an issue with both BT and Virgin's new apps is that they require an internet connection to make calls.

"Virgin's works from WiFi only, whereas BT's can also use a 3G connection," he said.

"This means smartphone users won't be able to take advantage of their landline minutes wherever they are, or at least not without eating into their data allowance.

"But being able to enjoy free calls to those back home when you're on holiday, could more than make up for this inconvenience."